New FalconStor CEO Making Cultural, Channel Strategy Changes

From the outside, a dark cloud has stood over FalconStor Software since founder ReiJane Huai resigned as CEO in September 2010. But inside the halls of FalconStor, there are signs of real change within the storage company. Indeed, The VAR Guy witnessed them first-hand today. Newly named CEO Jim McNiel is leveraging a Hoshin strategy to prioritize strategic goals within the company. And new VP of North American Sales John Turner — a Symantec and Veritas veteran — is working closely with VP of Channel Management and Global Alliances Brendan Kinkade to bolster partner relationships. But that’s not all.

McNiel seems intent on changing FalconStor’s culture. Under Huai, many FalconStor employees attempted to outperform rivals by working six days per week. McNiel, in stark contrast, seems to promote an all-in team approach — making sure all 500 employees have shared visions and shared goals. As the old cliche goes, many hands lighten the load. Within the halls of FalconStor there is a massive poster listing FalconStor’s new core values and goals. The poster includes signatures from dozens of employees — as if they’re signing off on the vision. Apparently, similar posters hang in FalconStor offices across the globe.

Dark Moment

FalconStor certainly needs that type of unity right now. Former CEO ReiJane Huai, the company’s founder, stepped down amid a payment probe in September 2010. McNiel says he has no updates to share in the case and no further comment about it at this time.

McNiel and other FalconStor leaders have spent recent months reassuring customers and partners that the payment probe will not negatively impact the company’s long-term R&D, customer and partner strategies. McNiel says he signed on as CEO following an in-depth independent review of FalconStor’s accounting. Plus, McNiel notes that FalconStor filed its 10-Q report on time to the SEC in November 2010 — an  apparent indication that the Huai payment probe was an isolated event.

Either way, FalconStor is undergoing a transformation. On the one hand, former CEO Huai is a well-known innovator, software engineer and entrepreneur. But on the other hand, McNiel is an established communicator who understands sales, marketing and communications. So it’s pretty easy to see where McNiel is taking the company. He certainly wants to maintain the best of FalconStor’s R&D, while improving the company’s reputation for ease-of-use and partner engagement.

McNiel discusses his channel partner vision in this FastChat video:

Leaders Huddle

The halls of FalconStor were mostly empty today. Like many companies on Long Island, FalconStor closed its headquarters today amid a storm that dumped 18 inches of snow. But McNiel and Turner — who joined FalconStor last week — were huddled in FalconStor’s offices talking strategy. And Kinkade, located in California, was dialing in on speaker phone. McNiel’s move into the CEO post and Turner’s decision to join the company both were announced earlier today; Kinkade was promoted to lead channels in November 2010.

Turner, meanwhile, says he joined FalconStor because the company is an innovator within a growing market that’s primed for disruption. While most companies still focus on traditional backup and storage, Turner and McNiel evangelize service-oriented data protection. Translation: FalconStor’s software protects individual IT services (such as a virtualized application).

McNiel describes service-oriented data protection in this FastChat video:

Fewer OEMs, More VMware Partners

Over the past year, McNiel — who had been consulting with the company at length — has helped FalconStor to reduce its reliance on OEM revenue and to bolster relationships with VMware solutions providers. The reason: OEM relationships with hardware companies can come and go, especially as giants like Oracle gobble up hardware companies like Sun. In stark contrast, traditional VAR relationships can last a lifetime.

A prime example: McNiel says OEMs represented 26 percent of FalconStor’s channel business in 2010, down from 48 percent in 2010. In stark contrast, VAR-related sales have steadily climbed, he adds.

McNiel is dusting off an old channel game plan and modernizing it for the cloud age. In the 1990s, thousands of Novell NetWare VARs made more money by reselling and supporting Cheyenne Software’s backup software. McNiel, Huai and many FalconStor employees are Cheyenne veterans. Today, McNiel is using a similar strategy in the VMware market. He claims VMware resellers can make $7 supporting FalconStor for every $1 worth of VMware they sell.

Roughly 25 VMware partners have embraced the strategy. And FalconStor will continue the effort at the VMware Partner Exchange conference in February. The conference is expected to attract 4,000 to 5,000 VMware partners.

Here Comes the Cloud

No doubt, McNiel also sees opportunities to cash in on the cloud. He describes the effort in this FastChat video, courtesy of TalkinCloud.com (The VAR Guy’s sister site):

Also, McNeil points to a cloud computing relationship with Hewlett-Packard, which has agreed to leverage FalconStor for managed storage services. And some vertical market MSPs use FalconStor for their managed storage services.

Still, FalconStor will need to sharpen its marketing messaging to ensure the company is part of cloud storage conversations across the channel.

Top Priorities

So, where are McNiel and his management team heading next? Here are some clues:

• From McNiel: FalconStor has to fulfill the promise of service-oriented data protection, allowing channel partners and IT administrators to manage thousands of objects across an enterprise from a single web-based interface called BlueStone. To deliver on that vision, FalconStor now leverages a RUM development strategy (Reliability, Usability and Manageability). Watch for major developments in Q2 2011, led by VP of R&D Bob Daly and CTO Walter Curti.
• From Turner: FalconStor needs to build a world-class sales organization. That includes a re-vamped compensation plan “Whatever we do for our sales team, we’ll do for our partners,” Turner adds. “They’re an extension to my organization.”
• From Kinkade: The channel team will leverage FalconStor’s corporate values while focusing on sales processes and partner coverage. “We need to make sure we have the right partners in the right geographies,” he says. “It’s about quality not quantity. We need to go wider with each partner.” It sounds like Kinkade is preparing some partner surprises, planned for late January and again in March 2011.

Lingering Challenges

No doubt, McNiel is working to change FalconStor’s culture and partner strategy. But he also faces lingering challenges. The company’s stock trades at about $3.41, down from about $13.95 in October 2008. At a time when the storage market enjoys exploding growth, FalconStor’s Q3 revenue for 2010 was $19 million, down 12 percent from Q3 2009.

And then there’s lingering questions about former CEO Huai and the payment probe. Some investors have filed suit over the probe. And until the probe ends, it seems like there’s somewhat of a cloud over FalconStor.

But look inside and the changes within FalconStor seem genuine. The VAR Guy wonders: Are they?

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